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A federal court in Oregon held that an arbitration agreement fails for lack of mutuality where it purports to require arbitration of all disputes between an employer and employee, but creates exceptions for claims typically only brought by an employer.
In Hamerick v. Aqua Glass, Inc., No. 07-3089-CL, 2008 WL 2853881 (D. Or. July 21, 2008), Hamerick sued Aqua, and Aqua moved to compel arbitration pursuant to an arbitration agreement in the parties' employment contract.
The Court denied Aqua's motion to compel arbitration. The Court held that the arbitration agreement was unconscionable because it lacked mutuality, as it "effectively requires arbitration only of claims likely to be brought by an employee or applicant for employment."
The Court found that the agreement required Hamerick to arbitrate nearly all claims, such as those for breach of contract, wrongful discharge, negligence, and all forms of unlawful discrimination. The Court noted that the only employee claims not subject to arbitration under the agreement were those Aqua could not legally compel arbitration of anyway, such as claims for workers' compensation, welfare, or pension benefits.
On the other hand, the Court held that Aqua's requirement to arbitrate its claims against Hamerick was illusory. Aqua was required to arbitrate all of its claims against Hamerick except claims for injunctive and equitable relief needed to enforce non-competition and non-solicitation agreements, and to protect Aqua's trade secrets and business reputation. The Court found that the "exceptions cover the very kinds of claims most likely to be brought by an employer against a current or former employee."
Consequently, the Court found that "[t]he net result is that the employer may seek relief in court for the claims that matter most to it, a right denied to the employee." In addition, the Court observed that the arbitration agreement imposed severe constraints upon discovery and shortened the limitations period for claims, but found these restrictions "inapplicable to claims of the kind likely to be brought by the employer." As a result, "the employer is unwilling to have its own claims heard and decided under the same rules that apply to employee claims."
Furthermore, the Court noted that the arbitration agreement's discovery limitation of only one deposition per party strongly favored Aqua, as the employee bears the burden of proof in the typical employment case. The Court then decided that it was better to void the entire agreement as a deterrent to future overreaching employers, rather than merely sever the unconscionable provisions. Thus, the Court held that the entire agreement was unconscionable and denied the motion to compel arbitration.
See also Miller v. Aqua Glass, Inc., No. 07-3088-CL, 2008 WL 2854125 (D. Or. July 21, 2008) (parallel case).
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